Cash balances at IB, whats the best way to create some yield without hurting margins too much?

[Daal]

Lets say you got a bunch of cash at IB that you use to daytrade, you are trying to generate some yield. What are some of the ideas of instruments you can buy to get some returns? The last time I checked USTs going 3 years out were yielding 0.5% a year (might have dropped now due to the stock market sell off), not great but better than nothing. The good thing is that they use like 97% of the notional value as margin with USTs, so you don't lose much BP. Anyone have other suggestions?
Obviously buying a bunch of stocks or options strategies are not great because it will hurt BP

 

[risknav]

Lets say you got a bunch of cash at IB that you use to daytrade, you are trying to generate some yield. What are some of the ideas of instruments you can buy to get some returns? The last time I checked USTs going 3 years out were yielding 0.5% a year (might have dropped now due to the stock market sell off), not great but better than nothing. The good thing is that they use like 97% of the notional value as margin with USTs, so you don't lose much BP. Anyone have other suggestions?
Obviously buying a bunch of stocks or options strategies are not great because it will hurt BP

You can FX carry trade the exact amount of cash you have in the account, this would represent zero margin impact, and ideally higher credit interest payments from IB.

This is done professionally, though they use leverage (and margin) and eventually invest/trade the proceeds.

If you’re not familiar with the strategy don’t just dive into it though, read up on the risks involved.

 

[volpunter]

Really? So what are you gonna do when treasuries are getting sold? You will jerk over some measly coupon payments, however, sit on an unrealized loss due to treasuries traded lower? Awesome idea....there is no free lunch.

Lets say you got a bunch of cash at IB that you use to daytrade, you are trying to generate some yield. What are some of the ideas of instruments you can buy to get some returns? The last time I checked USTs going 3 years out were yielding 0.5% a year (might have dropped now due to the stock market sell off), not great but better than nothing. The good thing is that they use like 97% of the notional value as margin with USTs, so you don't lose much BP. Anyone have other suggestions?
Obviously buying a bunch of stocks or options strategies are not great because it will hurt BP

 

[volpunter]

you are talking about carry trades? And how are you insulated from directional moves? You try to generate a little yield in return for taking on directional risk? Unless of course you understand and intend to trade in that direction it makes very little to no sense. AUDJPY, AUDUSD, NZDJPY, NZDUSD can get completely sacked during a healthy dose of risk-off. And so do all EM dollar crosses...

You can FX carry trade the exact amount of cash you have in the account, this would represent zero margin impact, and ideally higher credit interest payments from IB.

This is done professionally, though they use leverage (and margin) and eventually invest/trade the proceeds.

If you’re not familiar with the strategy don’t just dive into it though, read up on the risks involved.

 

[Daal]

Really? So what are you gonna do when treasuries are getting sold? You will jerk over some measly coupon payments, however, sit on an unrealized loss due to treasuries traded lower? Awesome idea....there is no free lunch.

The difference in risk between USD cash and short-term USTs is not that big, except USTs pay a little bit. An extra few thousand a year is nothing to ignore

 

[risknav]

you are talking about carry trades? And how are you insulated from directional moves? You try to generate a little yield in return for taking on directional risk? Unless of course you understand and intend to trade in that direction it makes very little to no sense. AUDJPY, AUDUSD, NZDJPY, NZDUSD can get completely sacked during a healthy dose of risk-off. And so do all EM dollar crosses...

Yes, I’m talking about carry trades.

As I mentioned in my last sentence, the trade must be understood but the fact this trader wouldn’t be leveraging it the directional risk has less importance. If he/she were to leverage up, yes, directional risk could ruin an otherwise good trade that the long cash was being used to secure it.

 

[volpunter]

Ah? How so? UST expose you to direct directional risk and are very volatile at the moment, relatively speaking. Unless you hold to maturity you are exposed to various risks vs holding USD.

The difference in risk between USD cash and short-term USTs is not that big, except USTs pay a little bit. An extra few thousand a year is nothing to ignore

 

[volpunter]

I am not following to be honest. So, as you could hear from OP a 0.5% or especially a 1% annualized return does matter (and he asked the question to inquire whether there are higher yielding products out there that still satisfy margin requirements when trading short term). Yet you say an unleveraged fx directional exposure is not important? How so when most dollar crosses, and much more so carry trade crosses move each day by 0.5% at the very least (daily, not annualized), and easily move up to 2% a day at least once a month? One such adverse move would wipe out more than a years worth of UST yield, earned.

Yes, I’m talking about carry trades.

As I mentioned in my last sentence, the trade must be understood but the fact this trader wouldn’t be leveraging it the directional risk has less importance. If he/she were to leverage up, yes, directional risk could ruin an otherwise good trade that the long cash was being used to secure it.

 

[Daal]

Ah? How so? UST expose you to direct directional risk and are very volatile at the moment, relatively speaking. Unless you hold to maturity you are exposed to various risks vs holding USD.

Yes, the idea is to hold to maturity and ignore fluctuations

 

[volpunter]

Sure you can do that and I would reckon only USTs satisfy all your requirements. You could hold higher yielding bonds to maturity but I doubt you can use such as generously to satisfy margin requirements than you can USTs.

Yes, the idea is to hold to maturity and ignore fluctuations